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Oct. 30 2009 - 8:18 am | 71 views | 1 recommendation | 11 comments

‘Third quarter growth’ and other things that mean nothing to you

GDP (Image from economicshelp.org)

GDP (Image from economicshelp.org)

Good news, everyone: The economic crisis is OVER!

Kind of. Today’s New York Times reports

The United States has emerged from the longest economic contraction since World War II.

The nation’s gross domestic product [GDP] expanded at an annual rate of 3.5 percent in the quarter that ended in September, matching its average growth rate of the last 80 years, according to the Commerce Department.

If life still sucks for you: you’re still unemployed, depressed, broke, homeless, or scraping by on food stamps, don’t worry. You’re not alone. In a recent Wall Street Journal/NBC poll, 58 percent of people said they see the country as being on the wrong economic track.

There’s always been a weird disconnect between official economic figures like GDP, “third quarter growth,” and average citizens’ lives. Basically, things can look great on paper, while low and moderate-income people suffer. It’s almost like the official record keepers have no idea what life is like for the guy working the graveyard shift in South Side Chicago.

This is not a new problem. Economic indicators like GDP may work swimmingly in lecture hall theories, but they ignore many factors important to the well being of a society, such as health care or life expectancy.

For example, 80 percent of Americans have reported feeling stressed about the economic downturn. The stress affects women the most, who report increases in symptoms like irritability, anger and fatigue. These kinds of economic downturn byproducts have untold consequences on family, workplace, and societal stability.

This stress can also manifest as insomnia. In West Virginia, the AP reports that nearly 1 in 5 West Virginians said they did not get a single good night’s sleep in the previous month. For West Virginia, a state that ranks at or near the bottom of the nation in several important measurements of health, including obesity, the insomnia epidemic may have its roots in the economy, says Dr. Ronald Chervin, a University of Michigan sleep disorders expert. Chevin says financial stress and odd-hour work shifts can play roles in sleeplessness.

However, insomnia isn’t measured in GDP. This disconnect was large enough to attract the attention of economists like the Nobel laureate Joseph Stiglitz, who is trying to come up with a new, broader definition of prosperity. In an interview with Bloomberg, Stiglitz said:

GDP has increasingly become used as a measure of societal well-being and changes in the structure of the economy and our society have made it an increasingly poor one…So many things that are important to individuals are not included in GDP.

In the model they unveiled, the academics recommend including other factors, such as sustainability and education.

Even the guy who invented the GDP, the late Russian-American economist Simon Kuznets, knew his system had significant shortcomings. He once said, “The welfare of a nation can scarcely be inferred from a measure of national income.”

It’s true. Fancy lab room words that seemed benign at the time, like “derivatives” and “sub-prime mortgages,” had unforeseen, terrible consequences on average citizens’ lives. Similarly, the specialized jargon of “GDP” and “third quarter growth” exist on different planets from the rest of us. While the students at the University of Chicago’s Department of Economics say one thing, it appears as though the opposite is happening in our backyards…again.

“The nation’s gross domestic product expanded at an annual rate of 3.5 percent in the quarter that ended in September.” Fantastic. So what? Does that bring back car-manufacturing jobs from Mexico? Does that mean corporations will now be taxed their fair share?

The official unemployment rate is at a 26-year high, and these statistics don’t count people who have been out of work so long that they’ve given up searching for employment. If we count the “discouraged,” as they’re so preciously called, it’s estimated that 26 million people are out of work.

“The big-picture perspective is that things have improved,” said Jan Hatzius, an assistant manager at Wal-Mart…

I’m sorry. I read that wrong. Hatzius is the chief United States economist at Goldman Sachs. I guess things do look pretty sunny over there.


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  1. collapse expand

    More anger for the sake of anger?

    You know, even during economically ‘good’ times, there are people for whom life sucks. Roughly half the number of people who have suffered through unemployment due to this nasty recession were suffering through unemployment during the good times. Any anger then?

    How can it possibly be a bad thing that GDP improved? It may not have come with jobs yet, but don’t you figure that an economy producing more is a lot more likely to get us back jobs faster than a sinking economy?

    “There’s always been a weird disconnect between official economic figures like GDP, “third quarter growth,” and average citizens’ lives. Basically, things can look great on paper, while low and moderate-income people suffer. It’s almost like the official record keepers have no idea what life is like for the guy working the graveyard shift in South Side Chicago.”

    Sorry, but you’re just mixing apples and oranges in order to come up with something sour.

    There is no disconnect between GDP and the guy on the South Side of Chicago having a job. The higher the GDP, the more jobs will be out there. The GDP was never intended to be the measurement of that worker’s quality of life.

    Yes, I agree with your points on corporate taxes, jobs leaving the country etc. etc. etc. But, I’m just not going to be unhappy about GDP improving. Sometimes good news is actually good new. You should try enjoying it. I promise it doesn’t hurt.

    • collapse expand

      Rising GDP is wonderful news, Rick. Unless, of course, there is such inequality in wealth that most of the benefits occur to the few (what Archie Bunker called the “tinkle-down effect”). That became obvious a few years ago, when companies that reported record profits were laying off worker (and still are, which is how so many of them are reporting “profits” today).

      Allison is expressing what many of us are feeling, which is a total disconnect from macroeconomic news that bears little relation to how we live. GDP may even be an obsolete concept nowadays, but regardless of whether it rises or falls, the pink slips will still go out as jobs are exported overseas.

      In response to another comment. See in context »
    • collapse expand

      Rick,

      While I agree an increase in GNP is a good thing in this case it may be a meaningless number. First it is for a quarter that is gearing up for Christmas, second GNP counts government spending so the stimulus is finally taking effect and third it is counting the financial sector which is being propped up and doesn’t translate to value for the average citizen.

      Now if the GNP starts expanding every quarter for a year and translates to more goods being produced, like automobiles where jobs are tied to production, then it would be time to celebrate. I took Allison’s point that the media is claiming the recession is over while the society looks around and sees no sign that things are getting better as valid.

      In response to another comment. See in context »
  2. collapse expand

    Nice comment on Hatzius. Very funny…

  3. collapse expand

    Every one of us that was given the ax so that an executive could make a fucking incremental percentage increase in the new fiscal year applauds your article Allison.

    More anger! Don’t let asshole lawyers convince you otherwise (i know you won’t.)

  4. collapse expand

    It’s also the essence of the “jobless recovery” — which never makes sense to me. If productivity and output increase because businesses are cutting people and pulling expenses off the table, sure they’re more efficient, but it’s not like the “misery index” improves right away. I admit I feel a little better whenever I see news about improvements, but it’s generally related to the thought that maybe my 401(k) will recover enough so I won’t have to subsist on puppy chow when I’m 80.

    • collapse expand

      Jobs have always been – and no doubt will always be- a trailing indicator of economic growth. There just isn’t really any way around it. If the economy continues to improve, jobs will follow. I totally appreciate that those without a job and suffering from a dreadful economy take little solace in this as they continue to suffer, but, if GDP continues to improve, jobs will follow.
      As for the disconnect that Michael references, I get that. There has been an ever-widening gap between the rich and the poor in this country- so much so that I continue to believe that we will eventually look more like Mexico than Mexico will look like us.
      However, I’m not sure I get the value of steam and ranting over this. The solution is political – not over the top anger, unless of course one is interested in revolution where the wealth of the rich is taken from them and shared with the poor.
      I often point out to those who are so angry over this the only way this type of inequity has ever been dealt with is through revolution. And, in each instance, the new boss ends up looking a lot like the old boss. Once someone has something to loose, they become far less willing to share-its human nature and why revolutions rarely end up solving this problem in the long run. The better way to is legislate in a way that looks more like Barack Obama and a lot less like George Bush.

      In response to another comment. See in context »
  5. collapse expand

    Ms. Kilkenny & Others,

    The Gross Domestic Product (GDP) is not a measure of profits or productivity. The GDP does not go up just because a company lays-off employees and produces the same amount of product. GDP is the total market value of all retail goods and services produced in the US (in the 3rd quarter of 2009 in this case) which is equal to total consumer, capital, and government spending, plus the value of exports, minus the value of imports. The GDP only goes up when more things are being bought than before (the 2nd quarter of 2009). This is not like the DJIA which is now a meaningless number, it should mean something. The question is it a harbinger of a generalized economic upturn or just a momentary blip on a broader downward trend.

    One clue is the role of the “Cash for Clunkers” program. According to the Bureau of Economic Analysis “Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP…”. This also accounted for 23% increase in durable goods. That was mostly existing inventory that got sold, it did not result in any new production of automobiles, no one put on an extra shift at any auto plant as a result. Since so few cars are manufactured in the US (whether they a “US” company or not), even if some workers were put to work, it would not have been in the US.

    Similarly, the BEA reports that “Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter…National defense increased 8.4 percent,…Nondefense increased 6.8 percent…” There were also increase in exports in the third quarter. Another big factor was “…residential fixed investment” (RFI) which went up 23.4 percent…”.

    http://www.bea.gov/briefrm/resfi.htm

    There were other factors of course but they were smaller, these were the big ones.

    The bottom line is that, it looks like a lot of the increase in the GDP were from activities associated with the Federal government and not a lot from private activity which might generate jobs. The main exception to this the RFI but it is just one quarter.

    http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

    The bigger picture is that the US economy is increasingly narrow, with fewer and fewer well paying manufacturing job and more and more service jobs. Even if a full fledged recovery were to take place, it would be within the narrow confines of FIRE (Finance, Insurance, and Real Estate (RFI)) and not likely to create the broader economic prosperity that previous recoveries have.

  6. collapse expand

    I’ve been scrubbing the numbers in the GDP report from BEA. What I saw was this:

    1. GDP Total went up about 110 Billion
    2. Automotive sales up about 40 Billion (junker stimulus)
    3. Federal Government spending up 20 Billion
    4. Inventory Investment up 30 Billion (junker stimulus removing backlog of cars)

    So 80% of that “growth” was for one time Government spending. This is money added to debt and taxation. And since virtually no cars will be sold in Q4, inventories will be back up. And no incentive to create log term jobs.

    The result is no true growth, no long term jobs, and more debt. Oh and less personal saving. Brilliant plan.

    • collapse expand

      I just realized davidlosangeles summed it up much better.

      But one other item. On the last table Appendix A they show:
      157% increase in Motor Vehicle Output
      19.5% decrease in computer related sales.

      How many decided not to purchase a computer and bought a car foreign sitting in inventory? Disposable income also went down 1.5%, so people now have less purchasing power.

      Since the inventory does not match the auto sales, one might be able to assume that some of the inventory simply moved to different products. So the reduction of car inventory resulted in increased inventory in other markets that did not benefit in the stimulus programs (People only have so much to spend, so govt. helped them choose a car instead of another products). Resulting in job cuts outside of the automotive industry. And since the “clunkers” program was limited there was no incentive to add auto jobs, but perhaps retain those that existed. The net effect could be a decrease in total jobs.
      Reasonable theory?

      In response to another comment. See in context »
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    I co-host Citizen Radio, the alternative political radio show. I am a contributing reporter to Huffington Post, Alternet.org, and The Nation.

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